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Reading the headlines lately, it’s easy to get swept up in a
general feeling of optimism about the business financing climate.
Angel investors are pouring
more money into startups. Venture capital has
rebounded in a big way. The SBA backed
record numbers of loans to small businesses in the last two
years. And on top of all that, alternatives like
crowdfunding are poised to open up brand new avenues for
businesses seeking capital.

With all this information, we’re moving in the right direction --
right? Then why do I still feel like access to capital is still
so difficult for the entrepreneurs, small-business owners and
franchisees we serve? Has access to capital really improved for
the main street American small businesses? (See
infographic below.)

These stats, along with widely circulated rumors of a tiny
startup
turning away billions of dollars, paint a picture that
couldn’t be further from the truth for most entrepreneurs today.
According to a
July report from the National Small Business Association, 35
percent (which is worse than last year, when the reported number
was 34 percent) of small businesses were unable to access
adequate capital in 2013. While that’s a significant improvement
over the peak-recession statistics, that still means roughly 8
million small businesses are strapped for cash and unable to
hire, take on new clients, or sadly, even keep their doors open.

Where’s the disconnect? Why aren’t small businesses and franchise
operations seeing greater access to credit, when so many
indicators are trending up? As the credit markets begin to bounce
back from the Great Recession, the recovery is strongly skewed in
favor of large enterprise – and small businesses are being left
out in the cold.

This combination of diminished collateral value and tightened
lending standards is creating a lending gap between small and big
business. According to the
FDIC, small business loans (classified as loans under $1
million) have been steadily declining since 2008, even while
large business loans have already recovered to pre-recession
levels.

The problem is even more pronounced for loans at the very low
end: according to a survey by the New
York Fed, small businesses seeking loans of less than
$100,000 were only successful 57 percent of the time -- compared
to a 73 percent success rate for those seeking loans above
$100,000. This is particularly troubling in light of the report’s
other finding: half of all small businesses fall into the
sub-$100,000-loan-seeker category.

It’s the nature of small business that financing day-to-day
operations and staying afloat during difficult periods can
occasionally require some capital assistance. Even in good times,
as when an opportunity to expand arises, most entrepreneurs are
unable to make a huge capital outlay on their own. These
challenges are proving particularly difficult to overcome in the
current credit crunch: 36 percent of small businesses were unable
to expand operations and 20 percent were forced to reduce their
staff due to lack of access to capital, according to the 2013
National Small Business Association
survey.

What’s an entrepreneur to do? We can sit back and wait for the
small business lending climate to turn in our favor – but there’s
a good chance that we’ll be waiting for a very, very long time.
In a
recent analysis by the Federal Reserve Bank of Cleveland, the
authors concluded that it is “unlikely that small-business credit
will spontaneously increase anytime in the near future.”

For the time being, it seems that small businesses have no choice
but to get creative on the financing front. Luckily, we’re
talking about one of the most creative, resourceful, and
resilient groups of people I know of: entrepreneurs! If you’ve
tried going down the typical financing path and been rejected,
don’t give up. Over the last ten years I’ve seen hundreds of
entrepreneurs who didn’t get a second look from the banks
persevere and build their dream business -- all without the help
of traditional bank financing.

There are myriad options to consider -- and there’s no
alternative financing route that will be right for everyone --
but here are a few of the most viable funding paths for small
businesses in this current credit climate:

How it works: Lenders offer fast cash
advances and charge high repayment fees. Collateral is not
required and paperwork is minimal.

Best candidates: High cash flow businesses
seeking up to $200,000. Popular with restaurants and small
retailers.

Downside: Loans carry extremely high fees
and must be repaid within a year.

Unsecured Credit

How it works: Lenders can offer unsecured
credit (meaning no collateral!) to new and existing entrepreneurs
simply based on their credit history. Funding can be secured in
as little as 45 days and it’s revolving, which means you can draw
down as necessary, pay back, and rinse and repeat.

Best candidates: Entrepreneurs with
extremely strong credit scores and credit history, as this type
of credit generally requires a personal guarantee.

How it works: An entrepreneur can invest up
to 100 percent of his or her retirement assets into a business or
franchise without taking a taxable distribution or getting a
loan. The plan becomes a shareholder in the business and thus
there are no interest payments, nor does it have to be paid back
in a specific window.

Best candidates: Entrepreneurs and business
owners who believe that diversifying retirement assets into their
own business is a great investment.

Downside: As with any investment, there is
the potential for loss. Additionally, the tax and ERISA rules are
complex, so working with a qualified firm is a must.

If you find yourself among the ranks of the 8 million
entrepreneurs who are unable to access adequate capital, one of
the above options could be the way forward for you. You do not
have to wait for the banks to come around -- it could be another
year, or another ten years. Know your options, research them in
depth, and find the alternative best suited to take your
particular business to the next level.